The Tokyo Overnight Average Rate, known as TONA, is the Bank of Japan’s daily measure of what it costs financial institutions to borrow yen overnight on an uncollateralized basis. It is calculated as a volume-weighted average of actual lending transactions in Japan’s call money market and is treated as the yen’s near risk-free benchmark, replacing Japanese Yen LIBOR for most new contracts after LIBOR’s phase-out.
What TONA Actually Measures
TONA tracks the interest rate on unsecured overnight loans between banks and other financial institutions in the Japanese call money market. “Unsecured” is the key word. Borrowers pledge no bonds and no other collateral; the loan rests entirely on the borrower’s creditworthiness. Only transactions that settle on the day they are traded and mature the next business day feed into the number, so the rate always reflects the freshest snapshot of overnight conditions.
Because the loans are overnight and between creditworthy institutions, the embedded credit and term risk is minimal. That is why TONA is classified as a “near risk-free rate” for the yen.1Tokyo Tanshi Co., Ltd. TONA It is also what makes TONA structurally different from the U.S. Secured Overnight Financing Rate (SOFR), which is built on collateralized repo trades.
How the Bank of Japan Calculates and Publishes TONA
The Bank of Japan collects transaction-level data from money market brokers operating in the domestic call market. Every eligible unsecured overnight trade is reported with its agreed rate and the amount of yen exchanged.1Tokyo Tanshi Co., Ltd. TONA
The central bank then runs a volume-weighted average. Each transaction’s rate is multiplied by its volume, those products are summed, and the total is divided by total volume across all transactions. The result is rounded to three decimal places. Larger trades carry proportionally more weight, so the published number reflects where the bulk of actual money moved rather than where a handful of small trades priced. Because the calculation uses only completed transactions, there is no room for the subjective “expert judgment” that discredited LIBOR submissions.
Publication happens on every Japanese business day in two steps, using Japan Standard Time:
- A provisional rate is published around 5:15 p.m. on the trade date, or around 6:15 p.m. on the last business day of each month except December.1Tokyo Tanshi Co., Ltd. TONA
- The final confirmed rate is published around 10:00 a.m. the following business day, after the Bank of Japan verifies the underlying data.2Bank of Japan. Call Money Market Data
Current and historical TONA figures live in the statistics section of the Bank of Japan’s website. That is the authoritative source; any third-party terminal displaying the rate ultimately draws from the same central bank feed.
Why TONA Replaced Yen LIBOR
TONA became the leading yen benchmark after global regulators concluded that LIBOR’s reliance on estimated quotes, rather than real transactions, left it vulnerable to manipulation. In December 2016, the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks identified the uncollateralized overnight call rate as the yen’s risk-free rate, setting the stage for a market-wide transition.
The transition picked up speed when the ISDA 2020 IBOR Fallbacks Protocol took effect on January 25, 2021. The protocol automatically rewired legacy derivative contracts referencing Yen LIBOR so that, on LIBOR’s cessation, they fall back to a compounded version of TONA plus a fixed spread adjustment. The spread is calculated as the five-year historical median of the gap between LIBOR and compounded TONA, which is intended to minimize value transfer between counterparties at the switch.
Japanese Yen LIBOR officially ceased after December 2021. TONA is now the default benchmark for virtually all new yen-denominated contracts needing an overnight reference rate, including interest rate swaps, floating-rate notes, and commercial loans.
Using TONA for Loans Longer Than a Day
TONA is a single-day rate, so applying it to a loan with a three-month or six-month interest period requires compounding the daily rates across the period. The Cross-Industry Committee has published standardized conventions for how this works.
The Compounding Formula
The standard method is the Annualized Cumulative Compound Rate. Each daily TONA rate is applied for the number of calendar days it covers (weekends and holidays carry the previous business day’s rate forward), and the daily factors are multiplied together. The product minus one, annualized over 365 days, gives the compounded rate for the period. Interest is then calculated by multiplying the principal by this compounded rate and the fraction of the year the period covers.3Bank of Japan. TONA (Fixing in Arrears) Conventions to Use in Loans
Any credit spread a borrower owes is added on top of the compounded rate, not compounded itself. The day count convention is ACT/365 (fixed), which differs from the ACT/360 convention Yen LIBOR used, so contracts transitioning from LIBOR need a day count adjustment.4Tokyo Tanshi Co., Ltd. Q&A Regarding Post LIBOR (No. 7)
The Lookback Convention
Fixing in arrears means the final interest amount is not known until the end of the period, which leaves no room to compute and arrange settlement. The recommended fix is a five-business-day lookback without observation shift. The TONA rates used for the calculation are shifted back five business days, so the rate applied to the last five business days of the period is actually based on fixings from five days earlier. That gives both sides enough time to compute and settle while keeping the mechanics straightforward.3Bank of Japan. TONA (Fixing in Arrears) Conventions to Use in Loans
TORF: A Forward-Looking Alternative
Borrowers who need to know their interest payment at the start of a period, not the end, cannot use compounded TONA alone. For those cases there is the Tokyo Term Risk Free Rate (TORF), published by QUICK Benchmarks Inc. and calculated from derivative transactions whose underlying asset is the uncollateralized overnight call rate.5QUICK Data Factory. Tokyo Term Risk Free Rate (TORF) Like LIBOR, TORF fixes at the beginning of the period, giving advance certainty over the upcoming payment. Unlike LIBOR, it is derived from observable market transactions rather than panel bank submissions. TORF is designated as a “Specified Financial Benchmark” under Japan’s Financial Instruments and Exchange Act, which subjects it to regulatory oversight. The Cross-Industry Committee recommends TONA as the main alternative benchmark, with TORF in a complementary role where forward-looking rates are genuinely needed, such as certain syndicated loans and trade finance facilities.
How TONA Differs From SOFR
Market participants dealing in both yen and dollars often need to compare TONA with the U.S. SOFR. The most fundamental distinction is collateral. TONA is unsecured, built from lending with no collateral behind it. SOFR is secured, derived from U.S. Treasury repo transactions where borrowers pledge government bonds. In normal markets the gap is modest, but during periods of credit stress, unsecured rates can spike relative to secured rates because lenders demand more compensation for pure credit exposure.6Bank for International Settlements. Beyond LIBOR – A Primer on the New Benchmark Rates
The data sources differ too. TONA relies on transaction reports from money market brokers. SOFR draws from three segments of the U.S. repo market: triparty repo, general collateral financing, and bilateral repo cleared through FICC. SOFR’s underlying transaction volume is substantially larger, reflecting the depth of the Treasury repo market. Both rates share a common purpose: replacing LIBOR with a benchmark grounded in actual transactions rather than estimated quotes.
What Moves the Rate
The single biggest driver of TONA is the Bank of Japan’s short-term policy interest rate. When the BOJ raises or lowers its target, overnight call money rates track closely. The central bank ended its negative interest rate policy in March 2024, initially moving the target to a range of 0.0% to 0.1%, and has since raised it to 0.75% as of early 2026. That shift pulled TONA from near-zero territory into a range that now reflects meaningful overnight borrowing costs for the first time in years.
Day-to-day fluctuations around the policy target come down to banking system liquidity. When commercial banks hold large excess reserves at the BOJ, lenders compete to deploy cash and push the rate slightly below target. When reserves tighten, typically around tax payment dates, fiscal year-end, or large government bond settlements, borrowers bid the rate up. The swings are usually small, measured in fractions of a basis point, but they matter for institutions managing billions of yen in overnight positions.
U.S. Tax Treatment When LIBOR Contracts Switch to TONA
For U.S. taxpayers holding yen-denominated debt or derivatives that originally referenced LIBOR, switching the reference rate to TONA could in principle be treated as a taxable modification of the contract. Treasury regulations provide a safe harbor to prevent that outcome.
Under 26 CFR ยง 1.1001-6, a “covered modification” that replaces a discontinued IBOR with a “qualified rate” is not treated as an exchange of property differing materially in kind or extent. TONA is explicitly listed as an example of a qualified floating rate.7eCFR. 26 CFR 1.1001-6 – Transition From Certain Interbank Offered Rates The safe harbor also covers associated modifications to technical or operational terms reasonably necessary to implement the switch, such as changes to observation periods or payment timing.
The safe harbor has limits. Modifications that change cash flows to induce a party to consent, compensate for unrelated changes, or reflect concessions for financial distress fall outside the covered modification rules and are analyzed under ordinary tax principles.8Federal Register. Guidance on the Transition From Interbank Offered Rates to Other Reference Rates If a LIBOR-to-TONA transition involved a one-time compensation payment, only the portion attributable to the rate basis difference qualifies; anything beyond that amount is treated as a noncovered modification subject to standard realization rules.